Knight Capital says that a "technology issue" at its market making unit was behind the volatile price movements in 140 shares yesterday that forced Nyse Euronext to cancel trades.
In early morning trading prices in dozens of stocks went haywire, reviving memories of the May 210 flash crash. After reviewing 140 stocks, Nyse Euronext eventually cancelled orders in six.
With the finger of blame pointing at it and a faulty algorithm, Knight Capital confirmed that it was behind the chaos, saying: "This morning, a technology issue occurred in Knight's market-making unit related to the routing of shares of approximately 150 stocks to the Nyse."
The Securities and Exchange Commission has confirmed it will be looking at the issue, saying: "As is our practice, we are closely monitoring the situation and in continuous contact with the Nyse and other market participants."
Shares in Knight - which, according to Bloomberg, helped execute almost $20 billion of equity transactions a day in June - closed yesterday just shy of 33% down, at $6.94.
Update:
In a statement on Thursday, Knight says: "As previously disclosed, Knight experienced a technology issue at the open of trading at the Nyse yesterday, August 1st. This issue was related to Knight's installation of trading software and resulted in Knight sending numerous erroneous orders in Nyse-listed securities into the market. This software has been removed from the company's systems.
"Clients were not negatively affected by the erroneous orders, and the software issue was limited to the routing of certain listed stocks to Nyse.
"Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million. Although the company's capital base has been severely impacted, the company's broker/dealer subsidiaries are in full compliance with their net capital requirements. Knight will continue its trading and market making activities at the commencement of trading today. The company is actively pursuing its strategic and financing alternatives to strengthen its capital base."
You can see Nanex's analysis of the meltdown here